Gasoline Price Changes - Federal Trade Commission

THE DYNAMIC OF SUPPLY, DEMAND, AND COMPETITION
Based on EIA data, annual average capacity utilization rates have dropped somewhat
from the peak levels of 1997 (95.1 percent) and 1998 (95.6 percent). 49 From 1999 through 2004,
U.S. refining capacity utilization rates ranged from a low of 90.3 percent (2002) to a high of 92.8
percent (2004). These somewhat lower utilization rates may reflect the increased refining
capacity, discussed above, which came into operation after 1998.
4. Nonetheless, new environmental regulations have required
substantial investments in refineries, and a gallon of
environmentally mandated gasoline costs more to produce
than a gallon of regular gasoline.
Gasoline use is a major factor in air pollution in the United States. 50 Consequently,
Congress has enacted a variety of laws to attempt to ameliorate the effect of gasoline use on air
quality. Beginning with the Clean Air Act Amendments of 1970, 51 and continuing with further
Amendments in 1990 52 and the Energy Policy Act of 1992, 53 Congress has mandated substantial
changes in the quality of gasoline, as well as diesel, that can be sold in the U.S. Many areas
within the U.S. now are required to use reformulated gasoline (RFG) during certain times of the
year to meet the Environmental Protection Agency’s (EPA) clean air requirements. 54 The EPA
testified that there “have been tremendous improvements in U.S. air pollution” and that the clean
fuel programs will continue to “play a significant role in helping keep our communities’ air
clean.” 55 With the benefits of cleaner air, however, come the cost of higher gasoline prices.
New environmental regulations required substantial investments, particularly at the
refining level of the industry to refine a cleaner gasoline. Figure 3-10 shows environmental
capital expenditures at the refining level during the 1990s and beyond, when many new
environmental requirements were implemented. Refinery environmental investments peaked at
$4.1 billion (in 2004 dollars) in 1992. During the 1990s, refinery environmental investments
accounted for about 25 percent of total domestic refinery capital investment. Moreover, the
American Petroleum Institute (API) estimates that slightly more than half of the oil industry’s
environmental expenditures between 1992 and 2001 – estimated at $102 billion in 2004 dollars –
were related to refining.
CHAPTER 3: THE NATIONAL LEVEL 57